Australia’s major banks have posted broadly resilient half‑year results, but KPMG warns the sector is bracing for a more challenging environment as higher rates and slowing growth bite.
The latest 25‑basis‑point cash rate hike to 4.35%, and Governor Michele Bullock’s warning that Australians are “poorer” after the recent oil shock, underscore that tougher backdrop.
KPMG’s 2026 Australian Major Banks Half Year Results Analysis shows the big four delivered a combined profit after tax of $15.2 billion, down 2.1% on 1H25. Return on average equity slipped 54 basis points to 10.7%, reflecting pressure on earnings even as balance sheets continue to expand.
David Heathcote, KPMG Australia’s head of banking & capital markets, said that “While the headline results remain resilient, the majors are positioning for a more challenging period ahead. The focus is increasingly on strengthening balance sheets and staying close to customers as inflation and interest rate pressures continue to work through the economy.”
Total assets across the majors rose 4.8% year‑on‑year, with loan portfolios up 5.4%.
Business lending remained the standout, growing 9.2%, while consumer lending – including home loans – increased 4.7%, pointing to steady demand from owner‑occupiers and investors.
Net interest income climbed 4.9% to $40.5 billion, driven by lending and deposit volume growth and higher earnings on capital and replicating portfolios. However, intense competition and higher liquidity holdings meant average net interest margin was broadly flat at 178 basis points.
Operating costs continued to rise. The average cost‑to‑income ratio moved to 52.1%, up 4.6% on 1H25, as inflation pushed up core expenses and banks stepped up investment. Technology spending increased 4.7%, with majors prioritising digital platforms, data and AI, fraud controls and cyber security.
“As banks seek access to AI talent with practical experience, those who jumped in and learned the skills quite early have become very valuable in the market, with productivity benefits expected to be realised in future periods,” said Brad Daffy, powered data & AI partner at KPMG Australia.
Expected credit loss provisions grew 3.6% to $22.8 billion, broadly in line with portfolio growth and a more cautious outlook. Even so, provisions remained at 0.6% of gross loans and advances, underscoring continued resilience in credit quality.
Capital and liquidity metrics stayed comfortably above regulatory minimums, with an average liquidity coverage ratio of 132% and a common equity tier 1 ratio of 12.2%. Dividends per share edged 2.3% higher across the half.
Heathcote said the results “reinforce the strength of the sector, but also signal a shift toward an unfavourable outlook,” as banks juggle growth and returns against a slowing economy, the threat of further rate rises and geopolitical uncertainty weighing on confidence.
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